Has Gold been a good Investment?

Has Gold been a good investment?

Gold has always been a popular investment even today. If we look at the value of the investment by gold, then it will come in the second number after real estate. If we talk about the returns of the last one dead year, then returns are also very good at 25-30%.

On the other hand, the stock market has gone down and if the stock market returns are not good, then it seems that gold can be a good investment, on the other hand, someone says is Gold Is not for Investment, gold is not a productive asset it will not give any other income, which of them is correct?

So we look at the historical comparison of how gold's and stock's returns are. We will see them on risk and returns.

So in this article, we will look at the gold and stocks investment and we will see if we have to invest in gold or not if we want to do then how much should we do?

First of all, what kind of investment is gold?

Gold is a commodity, there is no income-producing asset inside it if we compare it to other assets which are income-producing assets for example,

•    If you invest in real estate, you can get regular income from rent.

•    If you invest in the farm, you can get income from the crop.

•    If you invest in stocks, then that is the underline asset. The business that a lot of people work in it and give income product and that business is grown because of that, the price of that stock also goes up consequentially the business continues to grow,

 So the net the question comes if the gold is not income-producing is an asset, so why does its value go up?

Its value goes down due to demand-supply only

•    Price is driven by demand and supply for example in India if demand always remains, and we have been buying gold because of this the price of gold keeps going up.

•    If this demand stops, the price of gold can go down and go.

So you will think that if gold is not producing income then you should not invest but under it is not like that we should invest in gold, so why should we?

The business that a lot of people work towards the income-producing product and that business is grown because of that the price of that stock also goes up,

So the net question comes if the income inside gold Producing is not an asset, so why does its value go up?

Its value goes down due to demand-supply only

Price is driven by demand and supply, for example, India if demand always remains, and we have been buying gold because of this the price of gold keeps going up.

For example, if this demand stops, the price of gold can go down and go.

Why we are buying the gold there may be dual purpose as for use and as an investment

When we are buying it for consumption, that is, we buy it as gold jewelry, then we buy it to use, we will not consider it as an investment because here making charges have to be paid

As you exit the jewelry shop, then the value of 20 to 25 cents is reduced.

The second big problem is to remember the storage of jewelry, so keep it in the house

You cannot do much investment to keep at home because of the risk remains or you will keep it in the bank locker, you will have to pay the cost in the bank locker.

The third problem is when you buy jewelry of impurities, it does not become more than 22 carats.

Gold jewelry is made of 22 carats or less, with impurities added to it. Because gold is softer,

So gold in the form of jewelry is not an investment

But apart from this, we can buy gold as an investment

We have 4 ways

The first is physical gold, it is not gold jewelry, but it is in the form of coin or biscuit

Here you can get 24-carat gold. Here also the problem of stores definitely comes, if you keep it at home, then the risk of theft will remain. if you go to the bank and store it, then costs will come, because of this So, for this reason, we have come to the option of digital gold nowadays.

We have three options:

So our second form would come is that ETF of gold investment which we know in the name of exchange-traded funds, ETF works in the same way as Mutual Funds on the one hand, as Mutual Fund invests in stocks, ETFs invest themselves in physical form inside Gold. ETF stores gold at their end and take a value of that fund from you if you invest it in ETF fund, but to invest in an ETF, you have to have a Demat account.

The third option for gold investment is a gold mutual fund that is a kind of fund of funds. Those who do not want to invest directly in the ETF, those who do not want to operate a Demat account, they can invest in the Gold Mutual Fund, but here also some cost comes.

We have the fourth the option is sovereign bond gold bonds, RBI issues gold bonds within which you can invest.

       Here we will compare the returns from gold and stock histologically.

How long have we been calculating returns, we should always look at the graphically, how has it performed the investment.

 

 So here I have plotted a graph of gold and nifty. Let's understand that the orange color is our nifty and that of blue color is that of gold the point is, looking at the graph we will observe in the year about 2020, gold is going up fast here. Can you see the pattern of the stock on it? It is going down fast. Have we seen such a pattern even before that in 2008 It was the same as Nifty went down and Gold came up sharply? You see the annual return. Straight from 2006 to 2020

Year	Gold	Nifty
2006	20.26	39.86
2007	15.28	53.18
2008	22.17	-51.84	Financial Crisis
2009	22.67	68.85
2010	22.71	17.25
2011	31.09	-24.09	Europe crises in Greece, Italy & Spain, Late effect of 2008 crises
2012	12.12	27.35
2013	-4.99	5.93
2014	-8.6	31.44	News of China slows down. NPA was increased in INDIA
2015	-6.04	-4.08	News of a lot of companies may be bankrupted
2016	11.13	2.8
2017	5.18	28.75
2018	7.51	4.09
2019	23.67	11.66
2020	24	-15	Corona Effect

 I have highlighted the pattern here when the Nifty has dropped sharply, then Gold has gone up. Similar returns have come in 2011 nifty was down by- 25% and gold shot up to 31%.

 In the year 2014-15, then the Sensex went down and again gold shoot up here

If we talk about 2020, then here also Nifty was down by about -15% and Gold has up by 24%

So why? It is happening, so once in a while, we try to analyze the pattern.

See the financial crisis came here in 2008, the Nifty went down sharply and gold went up after this and we had a crisis in 2011, the debt crisis of the world in the year 2008, that crisis came in Europe, it was delayed in 2011. Much was seen inside Italy, how much was there inside Spain, inside Greece, there was a great debt crisis in Europe. See also at that time, this Nifty had also gone down and gold had come up the same pattern in 2014 -15 there was news of China's slowdown. NPAs were happening too much inside India. Some of the companies started getting bank-corrupt here. If we look here, the Nifty went down here and gold came up

By 2020. The crisis came here too due to coronavirus pandemic effect which has shaken the whole world, here the Nifty went down very fast and gold came up very fast,

In 2008, at that time there was a lot of crisis, people were thinking for safe investing at that time. If we were talking about 2011, people felt that the economy was going down fast, the gold started rising.

If more NPAs started increasing in India within 2014-15, then people felt that the economy could also go down from here, then people also invested more in gold here.

Because of the sentiments of the people whenever the stock market goes down for the safety of their future people are diverting their money to gold.

As gold is being treated as a safe investment, it is also a historical reason that gold was always used in the form of currency from ancient. But, when many countries started their currency in printed form, but still gold was maintained as a standard, and the government could not print unlimited currency for many years, but in today's date, the gold standard was almost abolished.

Any country can print currency unlimited numbers, But if you can have any number of currency, then it will mean more currency circulation, then inflation increases. Increasing inflation means that hyperinflation can also occur. It has also been seen in many countries.

When there is too much crisis in any economy, then the chances of taking hyperinflation are increased, that is, things become more expensive, you will have to spend more money to buy any goods, but if you have gold then you can buy anything by spending gold hence the value of that gold will not fall, because of this, gold is called a safe investment.

 Now we will compare gold with stock. Compute every investment on the old 4 parameters

Return

Risk

Liquidity

Volatility

Returns: In the stock market, you will see long term returns and hot and average you get 14 to 15 percent returns. But if you talk about gold, you get a 10 percent return from it, then gold is not a wealth creation asset for money, Gold is not a wealth creation asset.

Stock is a wealth creation asset. The stock is an income-producing asset because the business can grow if the stock is priced too low then you will lose your income but why should we buy the stock?

Risk: The risk inside the stock is more than the risk inside the gold, but it is not too low

For gold which we saw from the graph, the price of gold used to go up and down, which means that the volatility is quite high and A standard method of calculating risk is also by considering the standard deviation, that is, no matter how much the asset returns, if you see how much of the asset goes down from the average value, then we will see there is also a risk in gold but it is a Moderate Risk compare to stock.

Liquidity: The liquidity for both is high. You can spend it anytime. You can give physical gold at any time. For digital opted gold like a gold mutual fund, ETF you can give the exchange point also in the stock market only thing is, if we talk about the gold bond, you do not have given it back for 5 years because of the locking period here a little liquidity problem comes.

Volatility. Stock and Gold is both of them, there is a lot of volatility, and it depends on which timeline you are observing the returns. Sometimes Nifty returns may be higher in any period, but if we cross the long term then stocks always give more returns and they beat gold,

 Conclusion:

Then our final question comes, we should invest in gold, so why? And how much gold should we invest I?

You can invest in gold at least 5 to 10 percent of your portfolio why should we keep it? Gold always works for hedging. Gold does not create long term investment it is a very good hedging instrument hedging what is the meaning of hedging?

Hedging means reducing the risk We reduce our risk so that the risk can be subsidized with gold in the times of distracting when there is a crisis, then we lose a little bit in stock as the stock prices get tremendously down and during this period it will not be a wise decision to sell the stock but you can subsidize it with gold as during this period gold prices get shot. as we have seen historically above.